Question 1199360: Art wants to know how much he'll have to invest today to receive an annuity of $8,000 for three years if interest is earned at 10% annually.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! you can use a financial calculator to solve this, but it's small enough so that you can also do it manually.
i'll do all 3.
the assumption is that he will start receiving the annuity in one year.
using a calculator, i get a present value of 19,894.82.
doing it manually, you would do the following.
8000 / 1.10 = 7272.73 rounded to 2 decimal places.
8000 / 1.10^2 = 6611.57 rounded to 2 decimal places.
8000 / 1.10^3 = 6010.52 rounded to 2 decimal places.
the present value sum is equal to 19894.82.
the present values agree, as hey should.
your solution is that you would have to invest 19894.82 today so that you could receive 8000 for the next 3 years when the interest rate is 10% per year.
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